The Monte Carlo mindset
There is a rich seam to be mined in the provision of tools to calculate counterparty credit risk. Clive Davidson looks at what’s on offer so far, and what could be coming on to the market
Calculating counterparty credit risk poses a variety of challenges. Data, as always, is an issue. Then there is the problem of what model to use to best capture all the relevant risk factors. And while there is widespread acceptance of Monte Carlo simulation for overnight exposure calculations, pre-deal limits-checking requires something faster. Until recently, organisations were forced to trade off accuracy for speed to get a quick enough response to use in trading decisions. Now, new
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